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IIC Principles and Practice of Insurance Sample Questions (Q10-Q15):NEW QUESTION # 10
Huronial Insurance Company submitted incorporation documents and received approval to sell personal-lines property and automobile policies. Which document will the Office of the Superintendent of Financial Institutions (OSFI) issue?
- A. Order of commencement
- B. National insurance notice
- C. Insurer establishment document
- D. Insurer of record
Answer: A
Explanation:
To operate as a federally regulated insurance company in Canada, an insurer must receive authorization from OSFI after meeting all incorporation and capital requirements. Once OSFI is satisfied that the insurer has complied with statutory conditions, it issues an Order to Commence and Carry On Business-commonly referred to as an order of commencement. This document grants the insurer the legal authority to start underwriting and selling insurance in Canada.
Option A is not an official document under Canadian insurance regulation. Option C does not exist in federal insurance legislation. Option D is incorrect because the establishment of an insurer is handled through incorporation documents, not a post-approval "establishment" certificate.
Therefore, the correct OSFI authorization document is B: Order of commencement.
NEW QUESTION # 11
With respect to an insurance contract, what is the best example ofconsideration?
- A. Jennifer agrees to sell a $20,000 painting for $10,000 to her friend Shania
- B. Yasmin offers to sell her dog for $500 but Paula refuses
- C. Calvin wants to start a tutoring business and may charge $40 per hour
- D. Martin is returning a shirt he purchased online for $35 because he found it cheaper elsewhere
Answer: A
Explanation:
In contract law,considerationrefers to the exchange of something of value between parties. It is a necessary element for forming a legally binding insurance contract. In insurance, the insurer promises to indemnify the insured in exchange for thepremium-this exchange constitutes consideration.
OptionAis the only scenario demonstrating a clearbargained-for exchange. Jennifer gives up a painting of value, and Shania provides monetary payment. Even though the price is reduced, consideration still exists because each party is giving something of legal value.
Option B shows no exchange-only contemplation of future pricing.
Option C shows no contract formed, because the offer was not accepted.
Option D is a return/refund scenario, not an exchange forming a new contract.
Thus,Ais the best example of consideration.
NEW QUESTION # 12
Which risk could be insured bychattel coverage?
- A. Trip cancellation for a honeymoon
- B. A half-court shot contest at a basketball game
- C. Errors and omissions for a lawyer's office
- D. A mobile home belonging to a family
Answer: D
Explanation:
Chattelrefers tomovable personal property(as opposed to real property/land). Insurance policies that cover chattels protect items such as furniture, machinery, mobile homes, and other movable property.
Amobile homeis specifically recognized as chattel because it is transportable and not permanently affixed to land. Therefore, a mobile home qualifies for chattel insurance coverage.
Option A is atravel insurancerisk.
Option C is anevent prize indemnity risk, not related to chattel.
Option D isprofessional liability(errors & omissions), which covers negligence, not movable property.
Thus, the risk insurable under chattel coverage is amobile home, makingBthe correct choice.
NEW QUESTION # 13
Which financial outcome would be expected when engaging in a speculative risk?
- A. No possibility of loss
- B. No possibility of gain
- C. Possibility of gain only
- D. Possibility of either gain or loss
Answer: D
Explanation:
In insurance terminology, aspeculative riskis a situation where there is a possibility of either financial gain or financial loss, depending on how events unfold. This is what makes it different from apure risk, where the only possible outcomes are loss or no loss (but never a profit). Examples of speculative risk include investing in the stock market, starting a business, or buying foreign currency. In each of these situations, you may end up with a profit, break even, or suffer a loss.
Because speculative risks involve the potential for profit, they are generally not insurable. Insurance is designed to respond to pure risks, such as the risk of fire damaging a building, or a car accident causing injury or property damage. In those cases, there is no opportunity for financial gain from the event itself-only the chance of economic loss or no loss at all.
Therefore, the defining characteristic of speculative risk, and the correct answer to this question, is the possibility of either gain or loss, which is captured by option D.
NEW QUESTION # 14
An insurer writes a $60,000,000 risk for a premium of $30,000. Using pro rata reinsurance, it transfers 25% of the risk to the reinsurer. The risk then suffers a $100,000 loss. How much does the reinsurer contribute to this loss?
- A. $60,000
- B. $100,000
- C. $75,000
- D. $25,000
Answer: D
Explanation:
In pro rata (proportional) reinsurance, the reinsurer assumes a fixed percentage of both the risk and the premium, and in return pays the same percentage of any losses. Here, the insurer cedes 25% of the risk to the reinsurer. Therefore, the reinsurer must contribute 25% of any loss that occurs on that policy.
The loss amount is $100,000.
Reinsurer's share = 25% × $100,000 = $25,000.
The insurer retains the remaining 75%, or $75,000. Proportional reinsurance helps insurers manage exposure by sharing both costs and losses. Options B, C, and D do not correctly reflect proportional-sharing principles.
The reinsurer does not pay the full loss; it only pays its agreed percentage.
Thus, the correct answer is A: $25,000.
NEW QUESTION # 15
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